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Show Outline Key Concepts for selecting a Portfolio Manager
Choosing an investment manager is a lot like choosing a stock
Don't invest in anything you don't understand - this includes managers
What is their process?
How do they earn alpha? Do you need alpha?
What are your financial needs?
Wealth preservation?
Wealth Growth?
Do you need alpha?
Not every manager can provide alpha.
Not every manager seeks alpha
Not every investors NEEDS alpha
Value
Cost - How are they paid? What is the expense structure? How does it compare to alternatives?
Management Fees
Performance Fees
Next podcast will be a whole podcast on fee structure, so I'll limit my discussion on it here.
Growth
Investment managers inherently benefit from growing AUM. This is unavoidable. Regardless of pay structure. However, you want to understand what drives them. Is investing a passion or a money seeking endeavor?
Are they trying to grow AUM?
Do they plan to shut down growth at some point?
Quality
Competitive advantages?
How are they different from other investors?
Communication?
How do they communicate with clients?
Do you understand their process? Are you comfortable with them?
Style
Size of stocks
Liquidity
Value vs Growth vs Quality?
Overlooked companies?
Index hugging?
Concentration vs Diversification
Custom Portfolios vs Investment Fund
Some managers will setup a customized portfolio just for you
Or do you simply want to own a portion of a mutual fund or hedge fund.
Past Performance - Luck vs Skill
It is difficult to analyze a portfolio manager based on past performance
Instead, focus on their process.
If you understand their process you can potentially understand the odds of future outperformance (if you even need outperformance)
Summary:
Choosing an external investment manager for your wealth is a difficult decision. In this episode, I outline the key concepts you should consider when evaluating someone to be your personal portfolio manager.
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